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Lloyd's Investors Win Landmark Court Case : Insurance: Experts call the $780-million negligence judgment the largest in British history. Other suits are expected.


LONDON — In what experts say is the largest verdict in British legal history, a judge Tuesday awarded $780 million to more than 3,000 Lloyd's of London investors who claimed that their fortunes were squandered by incompetent managers in the famous insurance market.

The court, in a ruling against Lloyd's Gooda Walker syndicate and other defendants, found that underwriters failed to adequately spread their risks around the market and thus left investors overly exposed to such insurance disasters as the Exxon Valdez oil spill, Hurricane Hugo and the Piper Alpha oil rig explosion in the North Sea.

Many investors--known within Lloyd's as "Names"--have already lost fortunes and face continuing "cash calls," or demands for even more money. Under Lloyd's rules, Names have unlimited personal liability to pay insurance claims incurred by the syndicates they join.

Michael Deeny, who heads the plaintiffs group, said Tuesday: "Justice has triumphed. There are many Names who have been ruined by Lloyd's who will sleep at peace tonight for the first time since 1991. This judgment will encourage all other Lloyd's Names who have been victims of gross negligence."

Lloyd's, founded in a London coffee shop in 1688, is a private market composed of hundreds of independent syndicates, such as Gooda Walker, that use investors' money as capital to underwrite insurance policies. Lloyd's governing body is supposed to exercise control over the syndicates, but critics have charged that oversight was lax during the 1980s as the market exploded in volume and complexity.

A series of disasters, plus huge court verdicts in cases involving environmental damage and the ravages of asbestos-induced lung disease, have pushed the market to a string of record losses totaling more than $11 billion.

Judge Nicholas Phillips ruled that repayments to the 3,096 investors who won Tuesday must be covered by the rest of the Lloyd's market, including the 30,000 Names enrolled in other syndicates.

But there is some doubt as to when or even whether the victorious Names will collect.

Michael Payton, a Lloyd's lawyer, said long court battles still lie ahead and that any payments will be less than investors claim today. He noted that 15 of the agencies that were defendants in the Gooda Walker suit are in liquidation and some have inadequate or no reinsurance.

"There won't be any money changing hands here," predicted George Nordhaus, a Santa Monica insurance broker who, with his wife, has lost $800,000 in Lloyd's. Nordhaus, a plaintiff in the suit, said the verdict will reduce the Names' future liability but won't bring back what they have lost.

However, the ruling could spur about 17,000 other Names--many of them Americans--who have demanded their money be returned.

Some experts say the verdict may prompt other Lloyd's syndicates to settle with investors who are suing them in England.

Many Names say they were assured that investing in Lloyd's was a low-risk proposition because Lloyd's syndicates widely reinsured serious risks--that is, passed on a portion of the risk to other syndicates in the London market or to independent reinsurance companies in Europe and the United States.

But in some cases, as ruined Names learned to their chagrin, risks were transferred from underwriter to underwriter within the same syndicate, with commissions collected on each transaction but without any lessening of investors' exposure to a disaster. As for Lloyd's itself, the firm issued a statement pointing out that it was not a party in Tuesday's suit. The statement added, "Lloyd's welcomes anything that clarifies the situation for the members of Lloyd's."

Richard Rosenblatt of Santa Fe Springs, chairman of the American Names Assn., said of Tuesday's ruling: "This is an indictment of Lloyd's itself. Lloyd's encouraged the very acts condemned by the judge. This ruling becomes a role model for all upcoming cases involving Lloyd's."

William Tuohy reported from London and Thomas S. Mulligan from Los Angeles.

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